The Finance Ministry yesterday announced its update to new car price brackets, used to assess taxes on cars, which will take effect this coming January. As expected, the drop in the price brackets is between 5 to 7 percent.

While these prices are set by the treasury and used only for tax purposes, they directly affect the price of most new cars. Car importers will likely be forced to lower prices by a similar amount - even for those cars sold to leasing fleets, as well as those sold to private customers.

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Employees who receive cars from their employers pay taxes on them according to rates set by the treasury; these rates are based on the classification of all cars into one of seven prices brackets. Therefore, to keep specific models within one of the new, lower price categories, the importers will often have to lower the sale price; otherwise the worker will find himself paying higher taxes for cars classified in a higher tax bracket.

Category number two is the most popular one, which includes cars such as the Mazda 3, Toyota Corolla and Ford Focus. The treasury's limit for cars in this class will drop in January from a sticker price of NIS 120,500 to only NIS 114,000. The lowest price bracket, number 1, includes the Hyundai Getz and Daihatsu Sirion, and will drop from NIS 91,000 to NIS 87,000.

The Knesset Finance Committee will meet during December to officially approve the changes. If exchange rates do not change by more than 2 percent by then, the new brackets will take effect on January 1, 2007.

The changes also include the drop in VAT by 1 percent, a drop in purchase taxes, as well as changes due to exchange rate fluctuations.